I just came out of a meeting where I, once again, had to expalin the differences between the various benefits achievable by implementing a procurement system. I therefore post it here in the hope that it will also help our clients and the community.

The benefits achieved by implementing a procurement system must be viewed from two perspectives, namely measurable and un-measurable savings, which some would call hard and soft savings.

Measurable benefits are the direct price savings, achieved through leveraging the age-old principle of supply and demand and by increasing the purchasing power by channeling all purchases through a single channel. These price savings are tremendous and we normally achieve an audited saving of 20% for short-term insurance replacements. There may be an additional administrative cost involved, if prices are not present beforehand and have to be received manually, but most systems will display the spread difference between the cheapest and most expensive supplier that can be used as a guide.

Secondly un-measurable benefits are the additional savings achieved due to a more efficient process. This includes decreases in human resource, management, administrative and telephonic expenses as well as a decrease in incorrect and unnecessary purchases and fraud.

Incorrect purchases are expensive to rectify as there is normally additional administration and delivery costs involved and a cancellation fee can also be levied. These purchases are usually picked up and eliminated during the approval process or when escalated to the agents administrator, when a pre-approved mandate was breached.

The possibility of fraud always exists, and does occur, in procurement departments. This can be either fraudulent personal purchases or collusion fraud where kickbacks are paid to the procurement agent. Kickbacks are very tricky to control, as they come in many guises such as a trip to the Bahamas or massive discount on items. At the end of the day it is the purchasing company that pays for this indirectly through higher prices.

I am sure that there are many additional benefits that I am not aware of, as my experience was gained with insurance replacements, so please comment as I would also want to hear your point of view.